Fears of inflation weaken Asian currencies

The Indian rupee and the Thai baht led a broad fall in Asian currencies on Friday as foreign investors sold domestic assets on persistent concerns that authorities are falling behind accelerating inflation. Investors are expected to continue to stay away from stocks and bonds in countries that are especially vulnerable to greater price pressures, which will put pressure on their currencies.
"Basically, more investors are worried about inflation, which may drag economies across the region. So, they may rush to sell stocks and bonds especially in Indonesia, India and Philippine where they poured money last year," said a senior currency dealer at a European bank in Singapore.
Higher interest rates are usually a draw for foreign investors, but quickening inflation can erode asset returns and lead to aggressive policy changes that feeds market volatility. Tim Condon, head of research at ING Financial Markets in Singapore, said he thought investors were in general reducing exposure to emerging markets and probably buying risky assets in developed markets.
The baht slid against the dollar as foreign investors sold Thai stocks and some local gold importers bought dollars. Currency players also covered dollar short-positions. "The only one market (in Asia) where foreigners still keep buying stock is Taiwan. Maybe they try to adjust their portfolio," said a Bangkok-based dealer, adding the baht has a room to weaken to as soft as 30.70.
The Indonesian rupiah fell as foreign investors keep selling the country's stocks and bonds. Jakarta's benchmark stock index at one point fell 4 percent. The central bank was spotted selling dollars to check the rupiah's decline, dealers said.
"The rupiah is still facing pressure in the rupiah assets, although the BI is trying to hold on the spot," said a US bank dealer in Jakarta, adding the central bank was seen at 9,075 earlier and then again at 9,080. Meanwhile, the central bank governor Darmin Nasution said he was not concerned about current capital outflows from the country nor the pressure this was putting on the rupiah.
The won ended local trade lower on foreign investors' continuous sales in stocks and bonds. Foreigners have dumped a net 5 trillion won ($4.5 bln) worth of March-delivery three-year treasury futures since the start of this year as of 0525 GMT on Friday, versus their net buying of 1.36 trillion won for the whole of 2010, according to the Korea Exchange. They remained net sellers of Seoul shares, dumping a net 310.2 billion won on Friday after unloading a net 136.4 billion won in the previous session.